What was Keynes' problem with Neoliberalism?

Expert Solution

Keynesian economics shows cause of budget increase there is deficit in a recession and for this it cause crowding out. If government borrow more, interest rate on bonds rises and for this higher interest rates, investment will lower in private sector.

Resource crowding out-. If the government borrows to finance higher investment, the government is borrowing from the private sector and therefore, the private sector has fewer resources to finance private sector investment.

Inflation- Fiscal expansion has a problem that it come too late when economy is recovering anyway for this it causes inflation.

Time Lags.- It takes long time to change aggregate demand which is depend on AD increases and leads to inflation.

Problem of Unemployment-

Keynes has been condemned for undertaking only cyclical excess and divest which is found in the capitalist economies. He did not tell any solution to reduce this problem.

Rahul Sunny answered 4 months ago

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